Gap

A gap is a stretch of the price scale that the market skipped over without a single trade taking place in it: between the candle of the previous trading period and the candle of the next one there is empty space. It is not a price move but the absence of one in the middle of the range: there are trades before the break and after it, but none inside it.

Where the empty space comes from

An exchange trades in sessions, while information arrives continuously. Between the close and the open, earnings reports, regulatory decisions and outside news come out; orders pile up but have nowhere to be filled, because before the open the order book does not match buyers with sellers. The opening auction in the morning sets a new equilibrium price at once, in a single calculation, and if that price is far from the previous close, the intermediate levels are never traded. The size of a gap is measured as the distance between the close and the next open, usually as a percentage of the close.

How deep the break is depends not only on the strength of the news but also on liquidity: in a stock with a deep order book, orders smooth the transition, while in a thinly traded one the same trigger produces a visible step. A separate cause is a corporate action: a dividend record date or a stock split creates a break that reflects no revaluation of the business at all. A gap caused by a split is removed from the history altogether — that is the job of price history adjustment.

What a gap looks like on the chart

Over a long horizon, gaps show up as vertical steps between adjacent days:

Some of these steps are reactions to news, others are dividend record dates, in other words dividend gaps, and the chart itself does not tell the two apart: you need the payout calendar.

Where the term is misunderstood

The main misconception is that "a gap always gets filled". Gap filling is an observation about a particular sample of days, not a property of the market; for the rule to count as a working one, it is tested on a period that was not used to build it — otherwise the result is curve fitting.

The second mistake is applying the concept where trading is almost continuous. In round-the-clock segments, breaks between sessions simply do not form, and the word loses its meaning. The third is reading any empty space on the minute chart of an illiquid stock as a gap: there, a break means that no trades happened during those minutes, not that the market revalued the stock.